SFC reprimands and fines HSBC Securities Brokers (Asia) Limited USD6.3 million for Regulatory Breaches
The Securities and Futures Commission (SFC) has reprimanded and fined HSBC Securities Brokers (Asia) Limited (HCCB) USD6.3 million for internal control failures and breaches of the Code of Conduct.
The SFC found that between September 2018 and September 2021, HCCB failed to ensure compliance with the Rules of the Exchange of the Stock Exchange of Hong Kong Limited (SEHK) (Rules of the Exchange) by making multiple errors in the assignment of the Broker-to-Client Assigned Number (BCAN) to its clients who traded A-shares eligible for trading under northbound trading link of Stock Connect, also known as China Connect Securities (CCS), in the mapping of Client Identification Data (CID) to BCAN and in the tagging of BCAN to its clients’ orders. As a result, incorrect BCAN and CID information in relation to 92 clients were submitted to SEHK, involving 3,379,065 orders and 4,202,534 trades.
The errors were due to deficiencies in HCCB’s client onboarding and BCAN assignment processes, including the use of multi-layered data structures that involved multiple systems in the maintenance of BCAN information, and the manual nature of the account creation procedures and the use of manual processes in updating data between the systems.
The SFC also found that HCCB had oversold 100 CCS in nine incidents between February and June 2019, leading to settlement failures in 30 of the CCS. Seven of the overselling incidents were caused by various deficiencies in HCCB’s order management and algorithmic trading systems and demonstrate that HCCB did not have adequate controls to prevent the overselling orders.
Further, the SFC found that HCCB, when carrying out its warrant market making activities, erroneously self-matched 370 warrant orders on 22 May 2020 after its market making engine (MME) restarted during the lunch trading break of SEHK. HCCB had erroneously assumed that all live orders would be automatically cancelled by a functionality offered by the SEHK and by a built in logic in the MME during the system restart. When trading resumed at 13:00, new orders placed to the market self-matched the previously un-cancelled orders.
The SFC is of the view that HCCB failed to act with due skill, care and diligence in conducting its business, and to implement adequate and effective systems and controls to ensure compliance with the Code of Conduct and the requirements of the Rules of the Exchange (Note 5).
In deciding the sanction, the SFC took into account all relevant circumstances, including:
- HCCB self-reported the regulatory breaches and failings to the SFC and took remedial actions to strengthen its internal controls and systems following the self-reports, including engaging independent reviewers to review its internal controls and processes in relation to compliance with the BCAN requirements (Note 6);
- CCB took the initiative to bring this matter to an early conclusion and cooperated with the SFC in resolving the regulatory concerns; and
- the SEHK’s disciplinary action against HCCB over the BCAN related errors (Note 7).
The SFC has been working closely with the SEHK on this case. The SFC will continue to collaborate with the SEHK on enforcement cases involving regulated persons which are registered with the SEHK as participants.
Recommended news